Your Credit Score — It’s Not a Measure of Financial Responsibility

If I received a quarter for every time someone told me I “needed” a credit score I would be super rich right now. There are many myths surrounding the credit score and believe it or not, it’s the financial world itself that continues to spread these myths. Ask any educated finance graduate if you need a credit score and you’ll most likely hear a “default” answer of ABSOLUTELY.

Ask them why you need a score and not only are you likely to get an evil eye roll, the next words out of their mouth will probably be…ARE YOU KIDDING ME?

The fact that so many people believe that a good credit score is essential doesn’t surprise me. Take a look at any  high school curriculum and you’ll find that financial literacy classes are completely non-existent. Kind of ironic since it’s something we use regardless of socioeconomic status, college education, or income level.

Instead people take advice from financial planners and expect that advice to be accurate. And it’s not that these planners and financial “experts” are deliberately trying to deceive you; most of them believe it themselves.

The Truth About Your Debt Score

A credit score is often misunderstood to be a measure of financial responsibility but that couldn’t be further from the truth. It is more accurately defined as a measure of how much you borrow and pay back debt, but over the years has morphed into something much bigger. If it was a measurement of financial responsibility then your income, your debt to income ratio, employment history, and recurring bill payments would also be a part of that score. But they’re not.

Your FICO score is solely based on the following criteria:

  • 35% is based on debt history
  • 30% is based on debt level
  • 15% is based on length of time you’ve been in debt
  • 10% is based on new debt
  • 10% is based on type of debt

Is debt a complete picture of your financial responsibility? Nope.

What it does tell creditors is how likely you are to pay back the money that you borrow. That’s all it does. Nothing more nothing less.

For the record I’m not saying that this type of system should not be used to determine credit worthiness of those who wish to enter into financial slavery. It is great for measuring someone’s ability to borrow and pay back money, but what it isn’t great for is measuring total financial wellness and it most certainly shouldn’t effect your ability to otherwise prove you’re not a financial risk.

Building Your Score

Building your credit score is basically building your debt load and maintaining it for the rest of your life. If you stop borrowing money, your score WILL eventually drop off the map.

The mistake too many people make is by managing their entire life around their FICO score and in my humble opinion, it’s why Americans have an astronomical level of consumer debt. People worship their FICO score as if it were the ultimate human accomplishment. Suze Orman is the queen of credit score pimps but she doesn’t seem to be as interested in your financial well-being as she is in making a buck and unfortunately many people follow her advice.

Something I have said many times on this blog is that you should responsibly manage your money regardless of what your credit score will do. If you decide to pay off and close a credit card but change your mind because of what your credit score will d0, that is ridiculous. My ultimate goal is to lower my credit score because I refuse to participate in a system that tells me I should borrow money to be seen as financially responsible.

I’ll be okay.

Pay your bills, save money, and eliminate your burdensome debt and you will be much better off than if you go into debt and stay in debt to build your score.

Can You Get a Mortgage Without a Credit Score?

One of the biggest myths — I believe — that cause a majority of people to enter the “build my credit score marathon of debt” is the one that says you cannot get a mortgage without one. Mortgages have not always been given based on debt scores because those scores have not always been around.

Once upon a time, in a land FAR FAR AWAY, a thing called manual underwriting was used to measure ones ability to pay back a mortgage loan. All mortgages are underwritten but manual underwriting is when the loan officer bases your ability to pay back the loan on real-life data that you provide even if you are denied because of your credit score.

This doesn’t mean that if you’ve not been responsible paying back your debts this is your free ride around your score. In this post I am trying to debunk the myth that people who have decided not to borrow money — and their credit score drops as a result — cannot get a mortgage. It’s just not true.

If you can provide 20% down, show extensive employment history, sufficient income, a saving account (with savings in it), and documentation that you have consistently paid your bills on time for 18-24 months — you are a great candidate for manual underwriting.

You will not be able to just waltz into any bank and expect to be given this option.  You’ll have to do some research to find one that does but it is possible. This isn’t just an issue in the United States either. While they don’t use FICO in a country like Australia, they still use some form of credit scoring but they also have many companies who specialize in loans for people with bad credit.

So What Does All This Mean?

In short, you might want to reconsider what it means to “build your credit score”. Ask yourself what are you REALLY doing?

Do you want financial freedom or are you looking for the ability to borrow money to buy the things in life you are unwilling to save for?

  • Want to go on vacation? Save for it.
  • Want to get a new car? Save for it.
  • Want a bigger house? Save for it.
  • Want to eat out more? Budget for it.
  • Want Starbucks? Budget for it.

Want to get out of debt?

Ignore what your credit score does while you’re paying off debt! If it’s not what people would normally do you are most likely headed in the right direction.

We’ve been rejecting the idea of credit scores since 2008 and our life is much better for it. Not yet convinced? Check out this wonderful post about a lady who lived without a score for 40+ years. It proves that your credit score doesn’t evaluate your financial responsibility, it only proves you like borrowing money.

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About Brad Chaffee

29 Responses to “Your Credit Score — It’s Not a Measure of Financial Responsibility”

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  1. My family of four paid of all our debt and now we live comfortably debt free on ONE part-time income! Being debt free gives us lots of time to learn and enjoy life together. Who needs a FICO score when your debt free?

    • Brad Chaffee says:

      Congratulations Bobbie! As someone who has done the same thing I know how weird you really are. 😀 Keep being weird! Your comment BTW, sounds a lot like our life after debt freedom! We’re living the life we want and credit scores have absolutely no place in that life. 😀

  2. Interesting perspective, Brad! I agree with you, a credit score is not a measure of your overall financial responsibility. My credit score was in the mid 700’s at the exact moment that we were teetering on the edge of not being able to pay all our monthly bills. Up until that time, we were paying all our bills on time – so, my credit score was good because given my history I was very likely to pay borrowed money back. But, we were extremely financially irresponsible! Unfortunately, new creditors don’t give a rip about whether you’re being smart with your money, they only care whether they’re going to get their money back if they borrow it to you.

    • Brad Chaffee says:

      I don’t think a credit score is necessarily bad as long as the focus of ones financial decisions doesn’t revolve around that score. That’s when the problems begin to surface because you could find a hundred reasons why someone would supposedly “need” to raise their score to satisfy someone at a bank.

      I think you make a very good point Travis. Your credit score can be nothing more than smoke and mirrors since it is possible to be financially irresponsible while maintaining a solid credit score. Great comment dude!

  3. Your credit “score” is simply a reflection of what is on your credit “report”. Knowing your score is fine, but knowing what contributes to it gives you more knowledge, and more power to change it – which can be done indirectly by your habits, or directly through credit repair. But of course, there are no catchy songs for free credit reports, just free credit scores so that’s where people focus on.

    • Brad Chaffee says:

      I personally think the problem is in “repairing” ones credit report. How many people go into more debt each year in an effort to raise or repair their score? A creditors dream come true. Future business.

      As someone who has decided to reject debt in every way I just don’t see the need for a credit score. My credit report is a blank slate now and to me that is great news. No need to add anything or repair anything. To me, seeing nothing is better than seeing positive credit information. I just don’t see why it’s so hard for people to reject debt completely. 🙂

      • Certainly a logical way to look at things, just not reality for everyone (some people have debt & need to find a way out, some people need to buy cars and houses with loans & need credit, etc).

        • Brad Chaffee says:

          I respectfully would like to point out Kris that what your saying in your comment is precisely why I wrote this post. People do not “need” to get loans on cars they choose to because they would rather get a loan than save money and upgrade using cash. It’s not impossible to own a car without a loan, it’s just not popular but it does explain the growing debt problem in this country.

          As for getting a mortgage, I pointed out in this post how it can be done without using a credit score. For the ones that can’t do it using that method, perhaps owning a home is not for them at this time. Just because someone wants something now doesn’t mean they are entitled to having it. I am personally against mortgage debt but I still think that if someone chooses to get a mortgage they should be able to do so without a credit score (even if ultimately a credit score is actually used). In other words they should have 20% to put down, have steady income, solid employment history, savings that consists of more than 3 months of living expenses and some kind of record of at least two years of paying their bills on time. To me that proves they are really able to handle everything that comes with home ownership rather than basing it off of a score that doesn’t give a true picture of their financial situation.

          As Travis pointed out above, he had a terrific score but admitted to being financially irresponsible.

          I certainly understand where you are coming from but to me it’s only making the problem worse because it’s doing nothing but ignoring the real problem causing the debt problem in this country. Building credit and being able to buy things before you can really afford them is the problem. Saying someone needs debt to live is the same as saying an alcoholic needs to drink in order to cope with his problems. A rather extreme example but I think you get my point. Going along with what is socially accepted as “the way” to do things is nothing more than enabling the same kind of behavior.

          I know we disagree here but I hope you know that I mean no disrespect to you personally I just happen to be very passionate about this subject. I stopped believing that people needed debt a long time ago. I am living proof that debt is not needed and my ultimate goal is to pay 100% down for our next house which I consider chess-mate. If an ordinary guy can stop using debt and buy a house without a mortgage then there’s hope for everyone!

          Thing is there are plenty of believers out there that are already doing it. Thanks for the conversation Kris! 😀

          • Brad, its not that I disagree with you. But simply having a low interest car loan or mortgage are not automatically debt problems. I’m not sure where you live but in Connecticut, someone like me would be living in a tent or very undesirable location without a mortgage. Sure, I could move – theoretically – but at my age with a wife, 3 kids, and stable job, it’s not practical. Hey, I started my blog to share my story about getting out of debt so I’m all for a debt free life. But I also realize that helping people means sometime reaching them at different levels with different solutions. No disrespect taken 🙂

          • Brad Chaffee says:

            Haha! Great discussion Kris! 😀

            I simply do not accept car loans as a feasible way to own a car. (on used cars but especially new cars) After having owned cars both ways, and living paycheck to paycheck plagued with minimum payments robbing my income every week I can say from experience it is not only possible to own a car without debt, it’s so much less stressful and extremely worth it.

            Obviously based on my site name you know I hate debt. That statement is not just a catch phrase; I believe it, feel it in my soul, and therefore I live it. Even though some people may feel car loans (or any other loans) are acceptable I cannot stoop to that level because I don’t believe it. I feel my job here on EOD is to encourage, motivate and inspire people to strive to reach the “impossible”. 😀

            I’m not as against mortgages (though we’ve chosen not to go that route) as long as they are smart mortgages that people can actually afford. As shown with the mortgage crisis there are/were too many people that have no business having a mortgage. Home ownership is not an entitlement but a very serious commitment that comes with great responsibility. Sadly too many people have jumped into mortgages they couldn’t afford simply because the payment was affordable. As I’m sure you know home ownership is much more expensive than just the mortgage payment. I include myself in that group because I too have bit off more than I could chew all in the name of owning a home. 😀

  4. Suzanne says:

    Brad, I love your perspective on credit scores! I think my post last week struck a chord with you and I agree many of us would be in much better shape if we lived our life without credit and debt. One day I hope to be right there with you! For now I will keep paying my mortgage and car payment–no credit card bills here!

    • Brad Chaffee says:

      Well it wasn’t your post that triggered this article. A friend and fellow blogger sent me a tweet suggesting I check out his blog challenge. His challenge was to raise his credit score. Haha!

      I posted a comment sharing my thoughts about the very idea of trying to do such a thing, which you know is highly controversial in the finance world. Lol someone said well what if you want a mortgage? The post was originally supposed to address that issue alone but I felt I needed to explain why I felt that way for those hearing that point of view for the first time.

      I know you’ll join me oneday and for the record I do not think people should purposely destroy their credit. If they so like what you are doing and paying off their debt and living a financially responsible life and they happen to have a good score then that’s great.

      The problem is when people purposely start borrowing money or making financial decisions based on repairing or building their score. 😀

  5. Brad, I think you and I have exactly the same perspective on debt and credit scores. It’s so much easier to live debt free and not have to worry about what your credit score is. Doesn’t matter what you need to do financially, you can do it without a credit score. You just have to be a little more proactive about some things, but it is well worth it.

    I think too many PF bloggers and “gurus” tend to teach too much about how to manage credit than how to get rid of debt for good. Keep up the good fight, people need what we teach.

    Thanks so much for mentioning my article about living without a credit score for 40+ years at the end of your post. Huge props to you!

    • Brad Chaffee says:

      Right on Jason. Today, society tends to gravitate towards quick fixes and shortcuts to get what they want instead of using “grandma’s” financial principles to map out their future. Instead of creating an envelope to save for a trip to Hawaii they just put it on the credit card and to them it’s why they feel they need credit.

      Another great example is car ownership. It’s one of the worst ways to own a car yet financial gurus and bloggers alike continue to accept it as a need and something most people must do in order to own a car. It’s just not true.

      People need shelter, transportation, warmth, and love; all of which can be had without debt being the source. 😀

      • I love it! I’ve been paying cash for vacations and cars for years, they are a line item in my MONTHLY WRITTEN BUDGET (How many people actually do that?).

        Now I don’t get vacation hangovers like I once did before I paid cash (That goes back to another old post of mine, “Do You Have a Vacation Hangover?”)

        • Brad Chaffee says:

          Hangover for sure along with severe buyers remorse! LOL

          You know…kind of like what so many Americans experienced on December 26th after waking up to the fact that they (as a whole) added $40 billion dollars to their debt in JUST 2 MONTHS!

          That’s absolute insanity! I’m sure that $40 billion was all spent on “needs”. Yeah right!

          I just don’t see how people can claim debt as a need.

          • Yeah, I’ve seen those numbers. Debt loads are back to where they were before the crash of 2008. That tells me another crisis is coming. How it will play out, who knows. Eventually people are going to have to learn to live on less than they make. It’s the only way that makes sense.

          • Brad Chaffee says:

            Kind of ironic how the word “unsustainable” is heavily thrown around concerning our environment yet that word barely makes a dent in an environment much closer to home.

            People support what is popular not necessarily what is true.

  6. Penny says:

    This post made me smile. I was just talking to a friend who had recently gone to the bank and been rejected for a loan because her credit is terrible eventhough she has been working to get her debt down for a long time. The loan officer told her several things to do to raise her score. Many of them were laughable, although my favorite was stop paying off any of her cards and always make sure to carry a balance on at least one or two. She was advised to just pay the minimums on all her cards for a few months while still using at least two of them to up her credit score and then return for the loan. She was so proud of how easy it was going to be to raise her credit score that she didn’t even notice me picking my chin up from off the ground. Its amazing what people who want to keep you in debt will try to tell you.

    There are ways to have great credit scores without being in huge debt, but since that is only a number that helps you get more debt, it really shouldn’t matter. The only way to do it is to have great self control and discipline – and if you are in greatly in debt, you should work on raising your self control and financial discipline instead of raising your credit score.

    • Brad Chaffee says:

      “There are ways to have great credit scores without being in huge debt, but since that is only a number that helps you get more debt, it really shouldn’t matter. The only way to do it is to have great self control and discipline – and if you are in greatly in debt, you should work on raising your self control and financial discipline instead of raising your credit score.”


      I had to chime in and say I loved what you wrote especially the part about “raising your self control and financial discipline instead of raising your credit score.” Very nice way to look at things! 😀

  7. Brad, I totally agree with your here and I use these same similar examples when I’m talking to others. However, I never have the best reply for those who are applying for jobs that require a credit report. I was turned down by a company after failing a soft check.

    Do you have any thoughts on this? Is there a way around it?

    • Brad Chaffee says:

      Well there’s not an easy answer to that but if I were looking for a job and my credit score was going to come into play I would bring it up in my interview. I would have a copy of my credit report to show I do not have outstanding debt, a copy of my savings account statement, and anything else I could that proved I was not the unreliable risk that my credit score seemed to suggest.

      I would treat that interview as if I were getting a mortgage via manual underwriting. I would sell myself and my financial responsibility. Of course there’s still no guarantee it would work but I think if someone was looking at a report and was using that to base whether or not I was a risk they would have to at least give me a second thought. And if they are going to ignore it even with everything I provided then I probably wouldn’t want to work for such narrow-minded goons that would place a computer generated number over physical “in-your-face” data. 😀

      • I don’t know why I was signed in wrong here. (why didn’t my pic show up, went to my non-blog email too).

        My problem was that I didn’t even get to get an interview. I went into the hiring event, signed a form and they did the soft check and I was out the door.

        The kicker, I had worked for them in the past. Oh well, I’m better off now!

        • Brad Chaffee says:

          Not sure. That’s weird!

          Then I guess I would add attachments to my application which had my credit report and savings statement and perhaps a letter about my credit score.


  8. Eric says:

    “I refuse to participate in a system that tells me I should borrow money to be seen as financially responsible.” I love that line! Great work! Sharing it with my co-workers.

  9. Great post here! Although I have had my credit score/report accessed for other reasons such as if I will be a reliability tenant for renting an apartment, for the most part, it’s main purpose is to determine how much debt you can take out! haha

    Another better sign of financial viability would be your net worth position/personal balance sheet.

    • Brad Chaffee says:

      Thank you Jacob! Absolutely man. If we were looked at based on what we’ve accomplished instead of how much debt we’ve accumulated and paid back we probably wouldn’t be neck deep in debt. Could you imagine a world where people were trying to raise their net worth instead of a stupid credit score? Utopia perhaps? LOL

  10. Hi Brad–Excellent post! When I was in the mortgage business (until 2008) I constantly saw people with very high credit scores who also had enormous debt levels. Though the high credit scores may have been a visible indication of the appearance of financial responsibility, the reality was something different. An important metric that a credit score doesn’t account for is income. A person with a $30,000 income and $40,000 in consumer debt can still have a 750 credit score as long as they pay their bills on time and maintain “proper” debt utilization levels (less than 80% of available credit).

    After the mortgage meltdown it was found that credit scores were NOT an accurate predictor of mortgage default rates–WOW, whodda thought???

    I think people go ga-ga over credit scores because it’s an objective standard–a number we can use to compare ourselves against the “norm”. It’s a game of bigger (or higher) is better. We can measure it like we measure our weight or blood pressure and then work to improve it. But it’s become a faux metric like a 1 million retirement portfolio or a six figure income–nice to think about, but not at all truly necessary to someone who’s goal is to live a happy and productive life.

    You gotta love the media, the talking heads and all the other schmexperts out there who are so adept at elevating this nonsense to the level of a religious faith!

    • Brad Chaffee says:

      Excellent point Kevin! If the point of the credit score is for a creditor to evaluate risk then the FICO score fails to do even that.

      People view their credit scores as some kind of right of passage that signals they’ve “made it”. Laughable! 😀

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